Tuesday, November 25, 2008

How Much Is Too Much Debt

If you're a student, your payments shouldn't exceed 10% of your expected monthly gross income once you graduate...

[If] you borrow the maximum allowed under current federal student loan programs, $23,000, in subsidized and unsubsidized borrowing for dependent undergraduate students -- your monthly payments will be around $276.

That payment level should be manageable if you're making at least $33,000, which means you'd better be an accounting or business major...

Liberal arts grads, on the other hand, generally have to settle for salaries under $30,000 to start.

Beginning pay for psychology majors is about $26,000, while English majors are getting about $28,000. At those pay levels, you're better off borrowing no more than about $18,000 over your college career.

This is not good news considering that the average debt of those with debt is now $20,098

Re the maximum loan amount -- I don't know, not being involved in loans -- but from the article it sounds like $23,000 max. I believe one can borrow much more in the unsubsidized/unguaranteed market, many students do.

My own personal recommendation is not to borrow say $60,000 unless you absolutely have to or unless you are pretty sure of landing a lucrative job afterward.

But, I've known students whose parents refused to help support them, who did ring up that kind of debt. And I wouldn't tell them it wasn't worth, because I think it was for them. But I wouldn't recommend it for everyone, and I'd try to avoid it at least until giving it serious thought.